FROM THE MARGINS

I take my hats off to new Insurance Commission (IC) Chief Reynaldo Regalado, who considers microinsurance integral to the Commission’s bid to increase insurance penetration. Microinsurance offers protection tailor-fitted to the poor, with affordable premiums, simple documentary requirements and fast processing of claims. It covers lower-valued assets and compensation for illness, injury and death — providing safety nets that help low-income households cope with disaster and other unforeseen events. Commissioner Regalado’s statement of support during a policy dialogue with the Microinsurance MBA Association of the Philippines (MiMAP) is very encouraging to the microfinance and microinsurance industry. MiMAP is the umbrella organization of microinsurance mutual benefit associations (Mi-MBAs) in the country, and has been IC’s partner in financial inclusion advocacy for many years.

Risk protection for the poor

In a press release last month, IC reported that microinsurance premiums grew by 14 percent in 2022, with microinsurance providers collecting a total of ₱11.53 billion worth of premiums compared to ₱10.12 billion in 2021.  The number of lives insured by microinsurance products correspondingly increased by 7.5 percent, to 57.75 million in 2022 from 53.65 million insured lives the previous year. There is a growing demand for insurance after the pandemic, with increased insurance awareness even among the poor. Microinsurance in the Philippines has proliferated largely due to microfinance institutions (MFIs) which offer financial services along with microinsurance through affiliated Mi-MBAs. MiMAP alone, with its network of 19 Mi-MBAs and partners, has a combined membership of eight million individuals. It insured 29.59 million lives and paid ₱2.33 billion claims in 2022.  You can just imagine the impact of this impressive outreach on the lives of the poor, who would have been trapped in a downward spiral of worsening poverty had they not been able to avail of risk protection mechanisms offered by microinsurance! Mi-MBAs also promote empowerment. Their members are mostly microentrepreneurs and low-income  individuals who pool contributions solely for their protection. Mi-MBAs are managed by members themselves. They are self-help groups that do not operate for profit, merely filling-in the gaps in the government’s social protection programs and the market’s failure to meet the insurance needs of the poor. While insurance is important to the country’s economic growth amid risks brought by climate change, Commissioner Regalado lamented the fact that insurance coverage in the country remains low compared to neighboring countries, with insurance penetration only around two percent of our gross domestic product.

PIFITA: Pitfall and potential

Given this backdrop, MiMAP has sounded the alarm over Senate Bill No. 1364, a version of the Passive Income and Financial Intermediary Taxation Act (PIFITA) which repeals Section 20 of Republic Act No. 10693 (An Act Strengthening Non-Government Organizations Engaged in Microfinance Operations for the Poor), removing the two percent preferential tax granted to microfinance NGOs and subjecting them to taxes on interest income, capital gains, and documentary stamp tax. The consolidated PIFITA Bill approved by the House of Representatives and the other Senate versions of the Bill do not contain this provision. We are grateful that our legislators listened to the appeal of the Alliance of Philippine Partners in Enterprise Development (APPEND), the Microfinance Council of the Philippines, Inc. (MCPI) and other NGOs who lobbied against the repeal of RA 10693 last Congress. The PIFITA is one of the Administration’s priority bills.  It aims to simplify our tax structure that currently imposes numerous tax base and tax rate combinations on financial transactions.  Its objectives are good, and it can benefit the poor, provided that it does not repeal Section 20 of RA 10693. The Bill can also help microinsurance in a significant way, by amending Section 30(c) of the National Internal Revenue Code to expressly include microinsurance-MBAs in the enumeration of beneficiary societies, orders or associations operating for the exclusive benefit of their members and thus, exempted from income taxes. This will remove any ambiguity about Mi-MBAs’ tax-exempt status.

Call to action

As the Senate continues its deliberations on PIFITA, I hope they will consider that MFIs and Mi-MBAs are in the business of poverty eradication and do not operate for profit.  They serve millions of poor Filipinos, providing financial and social services in hard-to-reach areas. They are the last-mile conduits of financial inclusion. Subjecting them to taxes like other for-profit businesses would negatively impact their operations, forcing them to pass on the tax burden to their poor clients. I am grateful to the IC for always being supportive of microinsurance and our advocacy for financial inclusion. I hope our lawmakers, too, will pass a PIFITA that is pro-poor: affirming the tax exemption of microinsurance MBAs for the protection of the most vulnerable. Insurance is important because our country is prone to natural calamities. El Nino is upon us, extreme heat and drought posing threats to people’s health and the economy. As stated by Commissioner Regalado: “Insurance plays a critical role in improving our resilience against extreme weather events and other calamities that are worsening due to climate change.” *(Dr. Jaime Aristotle B. Alip is a poverty eradication advocate. He is the founder of the Center for Agriculture and Rural Development Mutually-Reinforcing Institutions (CARD MRI), a group of 23 organizations that provide social development services to eight million economically-disadvantaged Filipinos and insure more than 27 million nationwide.)*